Taking carbon – and housing – seriously

Dr Eric Crampton
Insights Newsletter
5 June, 2020

Minister for Climate Change James Shaw this week announced substantial strengthening of New Zealand’s Emissions Trading Scheme (ETS). Total emissions will be capped, and carbon prices allowed to increase to help reduce New Zealand’s overall greenhouse gas emissions.

The Government still needs to broaden the regime to account for emissions from international travel and to establish frameworks for international carbon credit tradeability. Both require international agreement. The latter measure would go a long way towards ensuring that every dollar’s worth of effort New Zealand puts into emissions abatement does the most good possible.

A well-functioning ETS, or comprehensive carbon tax regime, must be at the heart of any serious response to climate change. Prices in those markets not only signal the value of the next bit of emission reduction, they also provide incentive to reduce emissions for those best placed to do so. Emissions reductions then happen without need for central government direction about who is allowed or required to do what. Prices coordinate activity instead.

Because petrol is in the ETS, there is no additional need to encourage people to buy electric cars. Since emissions from electricity and heating are in the ETS, there is no additional need for regulations on household carbon use and green building design – or at least none based on greenhouse gas emissions. At best, those regulations do nothing beyond what is already encouraged by the ETS. At worst, they force people into ways of reducing emissions that are more costly than simply buying and retiring credits in the ETS.

But it can be even worse. Regulation risks working at cross-purposes to other Government objectives. The Government’s proposed changes to urban planning would require councils to consider how consents might effect climate change. While councils should consider the robustness of new infrastructure near sea level, councils should not need to consider the carbon emissions inherent in a new subdivision or cement plant. The emissions are already accounted for in the ETS.

The Government’s broader urban growth agenda seeks to enable more housing. Councils stymie development because they face all the costs of growth while enjoying few of the benefits. Requiring carbon accounting in consenting gives councils another lever to block new housing while doing nothing to reduce emissions – any emission reductions would simply free up credits for other uses.

Getting serious about emissions, and about housing, requires taking the ETS seriously too.

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